The Illegality of Unpaid Internships

From "Should I Work for Free?" (click to enlarge, or see www.shouldiworkforfree.com)

There’s a website going around aptly named “Should I Work for Free?” which features a flow chart to “help” users decide if they should work for free or not. Check it out – it’s clever and a little funny (especially considering the paths leading to “No” outnumber the paths leading to “Yes” by a score of 13 to 8).

Anyway, as co-President of the Private Equity & Venture Capital Club at Columbia Business School, I get a ton of questions from first-year students about summer and school-year internships. I love getting these questions because it’s interesting to see which industries and sectors are looking for extra help, and I get to be (potentially) beneficial to my classmates. With that said, I have also noticed a rise in the number of unpaid opportunities lately. I don’t know if this is actually true or if my anecdotal experience is simply an anomaly, but the concept of unpaid employment at a for-profit business has never felt right to me.  Irrespective of my opinion, however, unpaid internships are almost always illegal.

Yep, you read that right.

In April 2010, The New York Times published an article highlighting the individual internship experiences of a few students, but more importantly, the legal aspects of this facet of the labor market.  In short, an intern can only be unpaid if he or she is technically a “trainee” at the hiring company.  Further, to be a trainee, the form of the intern’s work must meet each of the following six points (note: the law is in bold italics followed by my commentary in plain text; red indicates points I routinely see violated):

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction. This is likely the most violated of the six points. In business school, I’ve NEVER heard of an unpaid internship that’s similar to “academic educational instruction.” In fact, isn’t it the separation from traditional classroom instruction that is attractive to interns?
  2. The training is for the benefit of the trainees. This is typically in compliance.
  3. The trainees do not displace regular employees, but work under their close observation. Although interns often work under the observation of regular employees, I’ve routinely heard of interns displacing regular employees (albeit in a small way).  For example, if an intern does ANYTHING that takes work off the plate of a regular employee, the regular employee has been partially “displaced” and would thus need to be paid for this work under the law.
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded. Having any new employee temporarily impedes the operations of existing employees, but the vast majority of interns are ultimately helpful to the hiring firm (most often through the violation of #3 above).
  5. The trainees are not necessarily entitled to a job at the conclusion of the training period. This is typically in compliance.
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training. This is typically in compliance.

That’s a lot red (especially when considering that ALL six requirements need to be satisfied for the unpaid internship to be legal). The good news is that this an easy problem to solve. The highest minimum wage in the country is in San Francisco at $9.92 per hour (see Wikipedia for the minimum wage by state). This equates to just $4,000 for a normal summer internship or $80 per day for a school-year internship (in New York the costs are 27% lower at$15,000 and $60, respectively). Considering the benefit companies get from interns, paying minimum wage is the least they can do. It also turns out it’s what they have to do.

Note: as a reminder, this is my personal blog and the opinions represented here are not necessarily shared by Columbia University or any other entity. I’m also not a lawyer and this post should not be construed as legal advice.